Pension or Mortgage overpayments

Pat38493

samps1973 said:

@Pat38493 As I'm 50 and late starting a mortgage, I'm trying to figure out the best way to pay my mortgage as quickly as possible because of my age but also not make a mistake with my pension so that I struggle in later life. Bit of a confusing one I guess.

With the advice I've been given here, so far I have changed to the sharia fund with nest pension which is doing very well at the moment. I have opened a cash isa which pays 5.2% interest and am planning on putting any overpayments into the isa instead of paying off the mortgage as its 1.59% Which I didnt think about but makes a lot of sense. I am going to save approx 20k within 3yrs into my isa and I will look at the interest rates of the new remortgage in 3 years time and decide whether to continue saving the overpayments in the isa. I also have to consider the help to buy amount  and whether the house prices have gone up or down etc and the interest rate there too.

 @Kernoshep wrote in a post above about something I can do with my private pension above  but I'm not sure how to go about it.

I'm going to pay anything I earn over £50,270 into my nest pension so I recieve tax relief, the tax releif I get back each year in the higher rate as a refund I am also going to put into the isa. I wont use my private pension until I'm in the br tax bracket.

I'll also consider when I'm 57 currently 55 I think, whether to draw the 25% tax free amount from my private pension depending again on the interest rates at that time.

I'm just wondering if that's ok and would anybody do anything to improve on that as I feel if I make a small mistake it could cost a lot in the long term.

I'm trying to sort it out now so that I dont get too old to lose my marbles 😂and also have to work till I'm 75 to pay the mortgage off.

I appreciate all the help you guys have given me here.

Thank you

It sounds reasonable as a good start to me.

Sorry I haven’t re-read the whole thread, but saying you have invested in the Sharia fund because it’s doing well right now isn’t necessarily a good reason to choose a fund.  In my view, iIf a fund is a long term investment you should look at the long term returns preferable of 10 years of more, and you should also drill down a bit to make sure that all of the gains didn’t come from some kind of weird one off events on the holdings of that fund.  which may not be repeated.  That said, I have seen various comments that the Sharia fund is pretty good but a bit overweight in tech stocks which some people argue are overvalued.

That said, it may be 10 times better than your previous investments so it’s sometimes not worth worrying about marginal topics.

I’ve also heard that the Nest pension platform is not great as it’s a bit inflexible and has a weird charging structure but maybe you are forced to use it by your employer or have other good reasons to do so.  Again - it’s not terrible but it’s not the best either.

Kernowshep

@samps1973 The bit I think you found confusing in my response was related to what to do with your ISA savings come mortgage renewal time, (because I think you have the "now" bit sorted).

Broadly you'll have these options:

- Keep the money in the ISA and continue saving in this way.
- Use the saved ISA money to reduce the mortgage amount.
- Use the saved ISA money to pay more into your pension (either in one go, or a bit more gradually from salary while spending a bit of the savings on living costs, that would otherwise have been paid for by the higher salary).  You can decide how you use the pension savings later. As things stand this is probably the most tax efficient (but who knows what will have changed by the time you need to decide).

Which to use at the time will depend on things like, if you can salary sacrifice into the pension, interest rates (saving and mortgage), your cash flow, any state benefit implications, and attitude to risk etc..

@Pat38493 the fund reference was related to the OP switching out of it because it had dropped a few percent in a short period of time having only recently switched to it.

IdrisJazz

Kernowshep said:

Based on what you've said (assuming no other debts/major savings or investment/household income etc. etc.) I'd do the following:
1. Pay anything that falls into higher rate tax into the pension (or the amount that gets the greatest company addition if that's more).
2. Not overpay while on a 1.59% rate, but save it in a savings account/ISA paying 5%+ interest instead (to make an extra 3.5% or so).
3. Not change what the pension is invested in based on a relatively small percentage change in value.
4. Look at the situation again 3-6 months before the mortgage needs to be renewed (including H2B rate and repayment options).

This is sound thinking.

You might think that overpaying £1000 a month is saving you money (it is), but in your circumstances it can work significantly harder with zero risk. 

When you remortgage, you'll need to see what you need to borrow next time (based on your savings position), or indeed what term you need, what your repayments will be and the interest rate. It might well be wort overpaying next time.